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Man United Hits 18-Month Low as Sports Stocks Battle Mixed Outlook

brendan coffey
·5 min read

It may have been Jim Ratcliffe’s dream to own a part of Manchester United, but overpaying for a minority stake in the business probably wasn’t. To gain a 27.7% stake in the world-famous club—with control of soccer operations—Ratcliffe spent $33 a share; that’s 20% more than anyone else had ever paid for shares of the club. Worse for Ratcliffe, after his tender offer for shares closed in mid-February, United shares (MANU) fell 13%, to $15.21, their lowest price in 18 months, or since the Glazer family first suggested it might sell the club.

The sagging enthusiasm for shares of the Red Devils made it the worst-performing stock of February in the Sportico Sports Stock Index. Man United shares actually ticked higher the first two weeks of the month, as arbitrage traders bought shares in the low $20 range, but by the end of February the shares finished down more than 22% for the month. Since Ratcliffe was buying a quarter of all shares, traders bet they could get out with a profit overall by getting some shares bought through the tender and selling the rest quickly.

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Those who didn’t sell now join Ratcliffe, who has a more-than 50% paper loss on his investment, in having to take a long-term view to seeing a financial payoff in the English Premier League squad. The good news is that there is some hope, brought in part by Ratcliffe himself, said Jefferies and Co. equity analyst Randal Konik. “The club’s recent ownership transaction underscores a shift toward experienced European football leadership and a real opportunity to improve team performance and club growth. The team is well-known and should continue to perform at a high level over the [long term],” said Konik in a recent research note.

United was one of 17 sports stocks to fall in February, with 23 rising, to give the benchmark sports index a 2% gain on the month, closing at 1,168. Stock market performance in the month was split heavily between big winners and big losers, with action broadly showing three trends at play: Sports revenue for broadcasters isn’t great, but in-person entertainment is strong, and so are are buying trends by European consumers.

Continuing bets placed mid-month by Wall Street, Walt Disney Co. (DIS) continues to be the one broadcaster that will benefit in the near term from cord-cutting and the emergence of the sports skinny bundle. Disney rallied 14% in February while seven of the other eight broadcasters in the sports index dropped. Weakness was particularly pronounced in Fubo (FUBO, down 22%)  given its emphasis on sports in selling its streaming bundle, but Paramount (PARA down 20%), Sinclair (SBGI, down 10%) and Fox (FOX down 9%) were also notable decliners.

The other broadcaster to post a gain in February? Sphere (SPHR), which rallied 23% despite its regional sports network MSG Network seeing an 8% decline in revenue in its latest quarter. MSG broadcasts a clutch of New York area teams, including the Knicks, Rangers, Devils and Islanders. Despite the RSN weakness, investors instead focused on the strength of Sphere’s core business: the Las Vegas Sphere, which made more money last quarter ($174 million) than the RSN ($146 million), even as U2 kept most of the ticket revenue from its 40 shows under its deal to open the venue.

Sister company MSG Entertainment (MSGE)—both are controlled by the Dolan family—gained 14% in the month on strong ticket sales at its various concert venues and the Manhattan arena. The company also says it had some deals with artists who have booked the space in case the NBA or NHL playoffs don’t happen for its tenant teams. Bowling alley and PBA Tour owner Bowlero (BOWL, up 7%), concessionaire Aramark (ARMK, up 5%), Live Entertainment (LYV, up 9%) and Vivid Seats (SEAT, up 0.2%) all also benefited from better in-person attendance for sports and other events.

Lastly, an uptick from consumers in the European Union rallied a couple of sporting gear stocks: Under Armour (UAA) posted a 15% gain in February as investors were heartened by its improvement in EU sales, with England, France and Spain especially strong, according to the company. Signs of EU strength probably also benefited On Holding (ONON), the maker of the popular On Running brand. On was the best-performing company in the Sportico Sports Stock Index in February, adding 27% to rally to $35.03 a share. Previously, On management had sounded very conservative about the strength of the European consumer in its November earnings announcement. With Under Armour reporting strong regional sales, it suggests On will come in better-than-expected when it releases its next set of earnings on March 12.

For the year-to-date, the Sportico Sports Stock Index is slightly up on the year, having retaken its January loses. The index is the first and only equity index that tracks the fortunes of U.S.-traded businesses most reliant on sports for their growth. The index debuted at 1,000 in August 2020 and is up about 16% since. The index includes sports teams such as the Atlanta Braves (BATRA, down 4% in February), league operators such as Formula One (FWONA, up 7%), and talent representation and sports entertainment firms like Endeavor Group (EDR, down 5%). The index is comprised of 40 stocks that are equal weighted, meaning each quarter each company is reset to comprise 2.5% of the index value. To be included in the sports index, a company must be reliant on sports for a significant portion of its growth, have shares trading in the U.S. in sufficient volume and have a market capitalization of at least $50 million.

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